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An Exciting New Technology That Could Take Pressure Off St. Jude Medical - Seeking Alpha |
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Renal denervation. This is something I had never heard about until St. Jude Medical (STJ) mentioned it at their February analyst day after first disclosing it in late 2011 (press release). As I include STJ in my Top 20 Model Portfolio, it caught my attention a few days after the press release when on the 3rd quarter conference call (link to transcript), CEO Dan Starks (one of the $100mm men I profiled recently) said:
There was only one question on the call regarding the topic, and, it seemed like I had some time to get up to speed given his description of the trial just having started. It really caught my attention at their analyst day. There's a lot more that you can read in the transcript, but here are some key points:
and
On 5/15, I was very surprised to see that the company received the CE Mark in Europe and is now launching the product (press release), using the name "EnligHTN". (click to enlarge) In case you aren't familiar with the company, about 1/2 their business is related to cardiac rhythm management, which includes old-school pace-makers and new-school implantable cardioverter defibrillators (ICDs). The business has been under pressure due to concerns over doctors implanting unnecessarily, but STJ in particular has had a cloud over it due to a quality issue with its Riata leads (no longer being sold). Other parts of the STJ business are very exciting, including its neuromodulation unit and atrial fibrillation unit, which have been growing strongly, and even its cardiovascular unit which will participate in the new minimally-invasive heart transcatheter valves and is seeing impressive growth with its OCT and FFR technologies used to help evaluate the need for stents and to help place them. In my view, STJ is very cheap, but the Riata overhang has been weighing on the company. They just got through a big industry society meeting relatively unscathed, which led to upgrades by Morgan, Stanley and Goldman, Sachs. So, a big new driver added to what I view as many other advances in their pipeline hitting the market in the next two years could help get the stock out of its recent funk. Now, STJ isn't the first to market, and they won't own this market, but reducing hypertension for those resistant to drug therapy seems like a massive opportunity. Medtronic (MDT) is first out with Symplicity, which they picked up when they acquired Ardian in 2011. The product, which is single-catheter based, has been on the market in Europe since 2008 and in a Phase 3 FDA trial approved last July. More recently, Covidien (COV) just bought Maya Medical for $230mm in order to gain its OneShot system, which already has its CE Mark. It appears to be an improvement of Medtronic's first-generation product too, and I am looking forward to learning more details after their presentation at the EuroPCR meeting today. There are several privately-held companies too, including Vessix Vascular and ReCor Medical. I think that STJ historically has done a great job of being a fast-follower, taking a new idea and coming up with great enhancements. In this case, the company has tremendous ablation technology (A-Fib), and it appears to have extended beyond the single-electrode technology of MDT. I look forward to learning more about this new technology from STJ and from others in the field. I find STJ stock to be extremely cheap at about 11PE, and this could prove to be one of several catalysts that could get it back towards its historically higher valuation (21 median PE last decade). I believe the stock can get to 16PE over the next year, which would suggest 50% upside to the current price. Disclosure: Long STJ in one or more models at InvestByModel.com |